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Reserve Bank of India

• The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the
Reserve Bank of India Act, 1934.
• The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to
Mumbai in 1937.
• Committee – Hilton Young Committee
• Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the
Government of India.
Central Board of Directors
❑ The Reserve Bank's affairs are governed by a central board of directors. The board is appointed by the
Government of India in keeping with the Reserve Bank of India Act.
❑ Appointed/nominated for a period of four years
Official Directors
❑ Full-time: Governor and not more than four Deputy Governors
Non-Official Directors
❑ Nominated by Government: ten Directors from various fields and two government Official
❑ Others: four Directors - one each from four local boards
Governor and Deputy Governors
Governor – Shaktikanta Das
➢ First Governor of RBI - Sir Osborne A. Smith
➢ Second Governor of RBI - Sir James Braid Taylor
➢ Third Governor (First Indian Governor) – C.D. Deshmukh
Other Important Names of the Governor of RBI are:-
❖ Dr. Manmohan Singh
❖ Dr. C. Rangarajan
❖ Dr. Urjit R. Patel
❖ Dr. Raghuram G. Rajan
❖ Dr. D. Subbarao
❖ Dr.Y.V. Reddy
❖ Dr. Bimal Jalan
Deputy Governor
The 4 Deputy Governor are: -
➢ Shri M. K. Jain
➢ Shri B.P. Kanungo
➢ Dr. Viral V. Acharya
➢ Shri N. S. Vishwanathan
Local Boards
One each for the four regions of the country in Mumbai, Calcutta, Chennai and New Delhi
Membership:
➢ consist of five members each
➢ appointed by the Central Government
➢ for a term of four years
Functions
To advise the Central Board on local matters and to represent territorial and economic interests of local
cooperative and indigenous banks; to perform such other functions as delegated by Central Board from time to
time.

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Subsidiaries
Subsidiaries Fully owned:
❑ Deposit Insurance and Credit Guarantee Corporation of India (DICGC),
❑ Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL),
❑ National Housing Bank (NHB)
DICGC
➢ Establishment – 15 July 1978.
➢ Headquarters – Mumbai
➢ Banks Covered - All commercial banks including branches of foreign banks functioning in India, local
area banks and regional rural banks are insured by the DICGC. At present all co-operative banks are
covered by the DICGC.
➢ Primary cooperative societies are not insured by the DICGC.
➢ The deposit insurance scheme is compulsory and no bank can withdraw from it.
➢ Deposit insurance premium is borne entirely by the insured bank.
➢ The DICGC insures all deposits such as savings, fixed, current, recurring, etc.
➢ Each depositor in a bank is insured upto a maximum of Rs. 1,00,000 (Rupees One Lakh) for both
principal and interest amount held by him by him.
National Housing Bank
➢ NHB was set up on July 9, 1988 under the National Housing Bank Act, 1987.
➢ NHB is wholly owned by Reserve Bank of India.
➢ The Head Office of NHB is at New Delhi.
Objectives-
➢ To promote cost effective housing finance system to cater to all segments of the population and to
integrate the housing finance system with the overall financial system.
➢ To promote housing finance institutions to adequately serve various regions and different income
groups.
BRBNMPL
❑ Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL) was established by RBI as its wholly
owned subsidiary on 3rd February 1995.
❑ It aims to augmenting the production of bank notes in India to enable the RBI to bridge the gap
between the supply and demand for bank notes in the country.
❑ The Registered and Corporate Office situated at Bengaluru.
❑ The company manages 2 Presses one at Mysore in Karnataka and the other at Salboni in West Bengal.

Functions of RBI
Monetary Authority:
• Formulates, implements and monitors the monetary policy.
• Objective: maintaining price stability while keeping in mind the objective of growth.
Regulator and supervisor of the financial system:
• Prescribes broad parameters of banking operations within which the country's banking and financial
system functions.
• Objective: maintain public confidence in the system, protect depositors' interest and provide cost-
effective banking services to the public.
Manager of Foreign Exchange
• Manages the Foreign Exchange Management Act, 1999.
• Objective: to facilitate external trade and payment and promote orderly development and maintenance
of foreign exchange market in India.

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Issuer of currency:
• Issues and exchanges or destroys currency and coins not fit for circulation.
• Objective: to give the public adequate quantity of supplies of currency notes and coins and in good
quality.
Developmental role
• Performs a wide range of promotional functions.
Related Functions
• Banker to the Government: performs merchant banking function for the central and the state
governments; also acts as their banker.
• Banker to banks: maintains banking accounts of all scheduled banks.

Issue of Currency

• Along with Government of India, RBI is responsible for the design, production and overall management
of the nation’s currency.
• The goal is to ensure adequate supply of clean and genuine notes.
• The Government of India is the issuing authority of coins and supplies coins to the Reserve Bank on
demand.
• The Reserve Bank puts the coins into circulation on behalf of the Central Government.
• The Department of Currency Management at Central Office, Mumbai, in cooperation with the Issue
Departments of the Reserve Bank’s Regional Offices across India oversees currency management.
• The function includes supplying and distributing adequate quantity of currency throughout the country
and ensuring the quality of banknotes in circulation by continuous supply of clean notes and timely
withdrawal of soiled notes.
• Four printing presses print and supply banknotes. These are at Dewas in Madhya Pradesh, Nasik in
Maharashtra, Mysore in Karnataka, and Salboni in West Bengal.
• The presses in Madhya Pradesh and Maharashtra are owned by the Security Printing and Minting
Corporation of India (SPMCIL), a wholly owned company of the Government of India.
• The presses in Karnataka and West Bengal are owned by the Bharatiya Reserve Bank Note Mudran
Private Limited (BRBNMPL), a wholly owned subsidiary of the Reserve Bank.
• Coins are minted by the Government of India. The Reserve Bank is the agent of the Government for
distribution, issue and handling of coins. Four mints are in operation: Mumbai in Maharashtra, Noida in
Uttar Pradesh, Kolkata, and Hyderabad.
• In India, currencies are issued by the RBI with the backing of reserves comprised of gold and foreign
exchange (foreign currencies).
• For the issue of currencies, the RBI follows Minimum Reserve System at present. The Minimum Reserve
System (MRS) is followed from 1956 onwards.
• Under the Minimum Reserve System, the RBI has to keep a minimum reserve of Rs 200 crore
comprising of gold coin and gold bullion and foreign currencies.
• Out of the total Rs 200 crores, Rs115 crore should be in the form of gold coins or gold bullion. The
purpose of shifting to MRS was to expand money supply to meet the needs of increasing transactions in
the economy.
Types of Notes
Soiled Note
• dirty due to normal wear and tear
• a two-piece note pasted together with no essential feature missing.
Mutilated Notes
• portion of note is missing
• which is composed of more than two pieces.

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Extremely brittle, burnt, charred, stuck up Notes

• extremely brittle or badly burnt
• inseparably stuck up together
Note with slogans and message of a political nature written across it ceases to be a legal tender.
Important Sections of RBI Act,1934
• Section 22 - Right to issue bank notes.
• Section 24 - Denominations of notes.
• Section 25 - Form of bank notes.
• Section 26 - Legal tender character of notes.
Features of Paper Currency
• Smallest Denomination – Re. 1, Highest Denomination – Rs. 10,000
• Re. 1 issued by Finance Ministry and Signed by Finance Secretary
• Other denomination – Issued by RBI and Signed by RBI governor
• Current Series – Mahatma Gandhi (New) Series
• Languages – 2(Hindi and English) + 15

• Year of printing of the note on the left

• Guaranteed by Central Government
Important Updates Related to Currency
Date: Feb 26, 2019
RBI to Issue New Design ₹ 100 Denomination Banknote
• RBI issued Rs. 100 denomination banknotes in the Mahatma Gandhi (New) Series, bearing signature of
Shaktikanta Das, Governor, Reserve Bank of India.
• The denomination has Motif of “RANI KI VAV” depicting the country’s cultural heritage.
• The base colour of the note is Lavender.
• Dimension of the banknote will be 66 mm × 142 mm.
Date: Jan 05, 2018
RBI to Issue New Design Rs. 10 Denomination Banknote
• RBI issued Rs. 10 denomination banknotes in the Mahatma Gandhi (New) Series.
• The new denomination has motif of Sun Temple, Konark depicting the country's cultural heritage.
• The base colour of the note is Chocolate Brown.
• Dimension of the banknote will be 63 mm x 123 mm.

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Foreign Exchange Management

• The early stages of foreign exchange management in the country was provided by the Foreign
Exchange Regulation Act (FERA).
• Significant developments in the external sector, such as, substantial increase in foreign exchange
reserves, growth in foreign trade, rationalization of tariffs, current account convertibility, increased
access to external commercial borrowings by Indian corporates and participation of foreign institutional
investors in Indian stock market, resulted in a changed environment.
• Keeping in view the changed environment, the Foreign Exchange Management Act (FEMA) was enacted
in 1999 to replace FERA. FEMA became effective from June 1, 2000
Foreign Investment
• The Reserve Bank has liberalised the provisions relating to foreign investments by permitting foreign
investment in almost all sectors, with a few exceptions.
• Foreign institutional investors are allowed to invest in all equity securities traded in the primary and
secondary markets.
• Foreign institutional investors have also been permitted to invest in Government of India treasury bills
and dated securities, corporate debt instruments and mutual funds.
• Indian entities can also make investment in an overseas joint venture or in a wholly-owned subsidiary
abroad upto a certain limit.
Reserve Bank as Banker to Banks
• Banks are required to maintain cash reserves with the Reserve Bank for this, they need to maintain
accounts with the Reserve Bank.
• They also need to keep accounts with the Reserve Bank for settling inter-bank obligations, such as,
clearing transactions of individual bank customers who have their accounts with different banks or
clearing money market transactions between two banks, buying and selling securities and foreign
currencies.
• In order to facilitate inter-bank transfer of funds, or to make payments and to receive funds on their
behalf, banks need a common banker. By providing the facility of opening accounts for banks, the
Reserve Bank becomes this common banker, known as ‘Banker to Banks’ function.
• The function is performed through the Deposit Accounts Department (DAD) at the Reserve Bank’s
Regional offices.
Lender of the last resort
• Reserve Bank also acts as the ‘lender of the last resort’.
• It can come to the rescue of a bank that is solvent but faces temporary liquidity problems by supplying
it with much needed liquidity when no one else is willing to extend credit to that bank.
• The Reserve Bank extends this facility to protect the interest of the depositors of the bank and to
prevent possible failure of the bank, which in turn may also affect other banks and institutions and can
have an adverse impact on financial stability and thus on the economy.

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